Partner Article

Lap dancing club VAT appeal dismissed at tax tribunal

Jim Burberry, Baker Tilly VAT partner, looks at a recent VAT appeal from a lap dancing club.

The First-Tier Tax Tribunal has dismissed an appeal from an exotic dance club which argued that some of its services should be exempt from VAT.

The appeal concerned the application of VAT to the supplies provided by the Sugar & Spice club in Norwich to its dancers.

The dancers, who were not paid by the club, made payments to the club for the use of its facilities, and earned income directly from patrons for dancing on the dance floor or for private performances in booths.

As part of its appeal case, Sugar & Spice argued that the booths it provided for dancers should be treated as a supply of land and therefore exempt from VAT. HMRC maintained that the services provided to the dancers - which included advertising, music, lighting, heating, cleaning, management and security - should be standard rated.

The Tribunal considered whether the supply of the booth could be considered separately, or whether, in return for the dancer’s payment, the club’s supply should be treated as a single supply for VAT purposes.

The Tribunal Chairman determined that the provision of the booth was not ‘economically divisible’ from the other elements of the supply, because the dancer’s ability to make money in a booth was dependant on using the main part of the club to attract customers for private dances.

The Tribunal also concluded that the composite service supplied to dancers added value to the simple provision of land, which therefore characterised the supply as the provision of services rather than the passive supply of land.

This is the latest decision in a series of cases relating to the VAT and tax affairs of businesses in this sector. This case should help provide some clarity on the application of VAT to the services provided by other firms operating similar business models.

This was posted in Bdaily's Members' News section by Baker Tilly .